Gregory Birmingham v. PNC Bank, N.A.


AMENDED OPINION filed amending and superseding opinion dated 01/18/2017. Originating case number: 8:15-cv-00108-PWG,14-18432,14-00378 Copies to all parties.. [15-1800]

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Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 1 of 24 PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1800 In Re: GREGORY BIRMINGHAM, Debtor. -------------------------GREGORY BIRMINGHAM, Plaintiff - Appellant, v. PNC BANK, N.A., Defendant - Appellee. Appeal from the United States District Court for the District of Maryland, at Greenbelt. Paul W. Grimm, District Judge. (8:15cv-00108-PWG; 14-18432; 14-00378) Argued: October 26, 2016 Amended: Decided: January 18, 2017 January 20, 2017 Before THACKER and HARRIS, Circuit Judges, and Gerald Bruce LEE, United States District Judge for the Eastern District of Virginia, sitting by designation. Affirmed by published opinion. Judge Lee wrote the opinion, in which Judge Harris and Judge Thacker joined. Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 2 of 24 ARGUED: John Douglas Burns, THE BURNS LAW FIRM, LLC, Greenbelt, Maryland, for Appellant. Daniel J. Tobin, BALLARD SPAHR LLP, Washington, D.C., for Appellee. ON BRIEF: Bryan J. Harrison, Matthew G. Summers, BALLARD SPAHR LLP, Baltimore, Maryland, for Appellee. 2 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 3 of 24 LEE, District Judge: The anti-modification clause in 11 U.S.C. § 1322(b)(2) of the Bankruptcy Code protects a mortgagee from having its claim in a Chapter 13 bankruptcy proceeding modified, if the mortgage is secured “only by a security interest in real property that is the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2). The issue in this appeal is whether reference in the Deed of Trust to escrow funds, insurance proceeds, or miscellaneous proceeds constitute additional collateral purposes of § 1322(b)(2). incidental property, modification incidental property for We hold that these items constitute which protection or entitles under § Appellee 1322(b)(2). to The antidistrict court’s determination is therefore affirmed. I. On May 23, (“Birmingham”) bankruptcy. 2014, filed a J.A. 342-45. Appellant voluntary Gregory petition John for Birmingham Chapter 13 One of the claims against Birmingham is a mortgage in the amount of $343,101.87 held by Appellee PNC Bank, N.A. (“PNC”), and secured by a deed of trust (“Deed of Trust”) Lane, on Birmingham’s Beltsville, primary Maryland residence 20705 at 11721 (“Property”). Chilcoate J.A. 329. According to the District of Maryland Claims Register, there is an arrearage on the mortgage of $93,386.58 as of June 23, 2015. J.A. 329. 3 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 4 of 24 Birmingham filed his Original Chapter 13 Bankruptcy Plan on June 4, 2014. J.A. 378. At that point in time, the Property was valued at only $206,400. J.A. 362. The Bankruptcy Plan included a cram-down of PNC’s interest in the Property. 385-86. J.A. After a series of objections and amendments to the Bankruptcy Plan, Birmingham filed a Complaint for Declaratory Action pursuant to 28 U.S.C. §§ 2201-2202; 11 U.S.C. §§ 105(a), 506(a), 2201 (11721 Chilcoate Ln Beltsville, MD 20705). 378-400. that J.A. Birmingham’s Complaint requested a declaration that PNC’s claim be treated subject to modification. as a partially unsecured claim J.A. 399-400. Birmingham argued that certain provisions of the Deed of Trust required collateral other than real property, which would remove the claim from 11 U.S.C. § 1322(b)(2)’s anti-modification protection. J.A. 397-99. Birmingham cited three specific provisions of the Deed of Trust, involving escrow items (Section Three), property insurance proceeds miscellaneous proceeds (Section Eleven). (Section Five), and J.A. 398. PNC filed a Motion to Dismiss the Adversary Complaint and an accompanying memorandum, contending that the items referred to in the Deed of Trust provisions property,” which cited is by part Birmingham of a constituted debtor’s principal “incidental residence. J.A. 674. Consequently, PNC argued that the additional items would not expose the PNC mortgage to a cram-down. 4 J.A. 674. Appeal: 15-1800 Doc: 81 After Filed: 01/20/2017 Birmingham filed a Pg: 5 of 24 response to the motion to dismiss, Bankruptcy Judge Wendelin I. Lipp granted the motion, noting that “the issues raised by [Birmingham] were identical to arguments that repeatedly have been denied by the Bankruptcy Court for this District.” J.A. 674. Birmingham then appealed the Bankruptcy Court’s decision to the United States District Court for the District of Maryland. J.A. 405. namely Birmingham that the raised inclusion the of same arguments miscellaneous on appeal, proceeds, escrow funds, and insurance proceeds in the Deed of Trust constitute a waiver of the 1322(b)(2). J.A. bankruptcy proceeds, anti-modification court’s escrow 422. The decision, funds, provision district holding and court that insurance of the 11 U.S.C. affirmed § the miscellaneous proceeds provisions describe “benefits which are merely incidental to an interest in real property” and generally are not “additional security for purposes of § 1322(b)(2).” J.A. 679. The district court further noted that the items at issue do not “have any value of their own separate and apart from the Property and the [PNC Deed of Trust]; to the contrary, they all exist only to give effect to the PNC’s security interest, which otherwise could be frustrated by a superior lien or by destruction or condemnation of the Property.” J.A. 681. 5 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 6 of 24 Birmingham filed a timely appeal before this circuit. 685-88. J.A. This case was consolidated with a nearly identical case that similarly originated in the District Court of Maryland, Akwa v. Residential Credit Solutions, Inc., No. 14-cv-02703-GJH, 530 B.R. 309 (D. Md. 2015). February 16, 2016. ECF The Akwa appeal was dismissed on No. 69-2. Accordingly, only the Birmingham appeal is currently before the Court. II. This dispute requires us to determine whether the district court properly concluded that the bankruptcy court did not err in dismissing Specifically, we the adversary are to proceedings analyze whether against the PNC. district court correctly affirmed the bankruptcy court’s finding that PNC is entitled to the anti-modification protections of 11 U.S.C. § 1322 (b)(2). Because the district court sits as an appellate tribunal in bankruptcy, plenary. Properties our review of the district court’s decision is Bowers v. Atlanta Motors Speedway (In re Se. Hotel Ltd. P’ship), (citation omitted). 99 F.3d 151, 154 (4th Cir. 1996) “We apply the same standard of review as the district court applied to the bankruptcy court’s decision.” Id. “Findings conclusions of of fact are reviewed law are reviewed omitted). 6 de for novo.” clear Id. error, and (citation Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 7 of 24 A. The bankruptcy Birmingham’s 12(b)(6). court complaint J.A. granted PNC’s under Federal The district 675. motion Rule of court to Civil dismiss Procedure applied this standard of review to the bankruptcy court’s decision. same Id. A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the complaint. v. Allain, 478 U.S. 265, 283 (1986). granted unless relief.” the complaint Papasan The motion should be “states a plausible claim for Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). In considering a Rule 12(b)(6) motion, the Court “must accept as true all of the factual allegations contained in the complaint,” drawing “all reasonable inferences” in the non-moving party’s favor. E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (citations omitted). court is not obligated conclusions drawn Freightliner LLC, from 550 to assume the F.3d the facts 369, 374 veracity alleged. (4th Cir. of the The legal Adcock 2008) v. (citing Dist. 28, United Mine Workers of Am., Inc. v. Wellmore Coal Corp., 609 F.2d 1083, 1085-86 (4th Cir. 1979)). The complaint must contain sufficient factual allegations, taken as true, “to raise a right to relief above the speculative level” and “nudge [the] claims across the line from conceivable 7 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 to plausible.” Pg: 8 of 24 Vitol, S.A. v. Primerose Shipping Co., 708 F.3d 527, 543 (4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)). The facial plausibility standard requires pleading of “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct Charlottesville, 708 F.3d Iqbal, 556 U.S. at 678). not a probability alleged.” 549, 554 Clatterbuck (4th Cir. v. City 2013) of (quoting The plausibility requirement imposes requirement but rather a mandate that a plaintiff “demonstrate more than a ‘sheer possibility that a defendant has acted unlawfully.’” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). Accordingly, a complaint is insufficient if it relies upon “naked assertions” and “unadorned conclusory allegations” devoid of “factual complaint enhancement.” must present Id. “‘enough (citations facts to omitted). raise a The reasonable expectation that discovery will reveal evidence’ of the alleged activity.” US Airline Pilots Ass’n v. Awappa, LLC, 615 F.3d 312, 317 (4th Cir. 2010) (quoting Twombly, 550 U.S. at 556). In addition to the complaint, the court will also examine “documents well as incorporated those Clatterbuck, matters 708 F.3d into the properly at 557 complaint subject (citations by to reference,” judicial omitted); as notice. see also Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 8 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 9 of 24 172, 176 (4th Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)). B. Certain provisions of the Bankruptcy Code are relevant to this appeal. “Under Chapter 13 of the Bankruptcy Code, individual debtors may obtain adjustment of their indebtedness through a court.” flexible repayment plan approved by a bankruptcy Nobelman v. Am. Sav. Bank, 508 U.S. 324, 327 (1993). The relationship between 11 U.S.C. § 506(a) and § 1322(b)(2) is pertinent to this circuit’s decision to affirm the Birmingham’s complaint. review of bankruptcy the district court’s court’s dismissal of Section 506(a) is used in conjunction with § 1322 to allow modification, or bifurcation, of a secured creditor’s claim into secured and unsecured portions when the claim exceeds the value of the secured property. Nobelman, 508 U.S. at 328. In Nobelman, the Supreme Court examined the nexus between claim-bifurcation under § 506(a) and the anti-modification provision of § 1322(b)(2) to ascertain whether a debtor could bifurcate a single, under-secured residential mortgage into secured and unsecured components pursuant to § 506(a). at 326. claim Id. The debtor in Nobelman argued that § 1322(b)(2)’s anti- modification provision applied only to the secured component of her mortgage claim, as defined in § 506(a). 9 Id. Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 10 of 24 Section 506(a) states that: (a)(1) An allowed claim of creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property . . . and is an unsecured claim to the extent that the value of such creditor’s interest is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest. 11 U.S.C. § 506(a). Accordingly, under § 506(a), “an allowed claim secured by a lien on the debtor’s property is a secured claim to the extent of the value of the property; to the extent the claim exceeds the value of the property, it is an unsecured claim.” Nobelman, 508 U.S. at 328 (internal quotation marks omitted). Notwithstanding, § 1322(b)(2) provides: (b) Subject to subsections (a) and (c) of this section, the plan may— . . . Modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence . . . . 11 U.S.C. precludes § 1322(b)(2). reduction or This cramming “anti-modification” down the value of provision a claim secured by an interest in real property that is the debtor’s principal residence. In other words, a claimant’s interest in 10 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 11 of 24 real property that is secured solely by the debtor’s principal residence may not be bifurcated. C. Congress clarified the meaning of a key term in the antimodification clause, “debtor’s principal residence,” in the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCP Act”) of 2005. The Bankruptcy Code now defines the term as “a residential structure if used as the principal residence by the debtor, including incidental property, without regard to whether that structure is attached 101(13A)(A)(emphasis to real property.” The BAPCP added). Act 11 also U.S.C. § defined “incidental property,” as it relates to a debtor’s principal residence, as follows: (A) property commonly residence in the area located; conveyed with a principal where the real property is (B) all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; (C) all replacements or additions. 11 U.S.C. § 101(27B). The Code defines a security interest as a “lien created by an agreement.” 11 U.S.C. § 101(51). Moreover, a lien is defined as a “charge against or interest in property to secure a payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37). 11 Appeal: 15-1800 Doc: 81 With Filed: 01/20/2017 this framework in Pg: 12 of 24 mind, and for the reasons that follow, we hold that the district court’s decision to affirm the bankruptcy court’s correct. PNC’s dismissal loan principal residence Bankruptcy Code’s and of Birmingham’s was secured not any solely additional anti-modification complaint by bifurcation sought by Birmingham. Birmingham’s collateral. provision was The precluded the Consequently, Birmingham’s complaint was appropriately dismissed. III. The Birmingham Deed of Trust not only grants PNC a security interest in protections protections the for are Property, PNC. not but However, additional also provides saliently, collateral and the do additional auxiliary not remove PNC’s claim from the protection of § 1322(b)(2). A. Of particular importance to this Court’s analysis are Sections 3, 5, and 11 of the Deed of Trust, all of which will be analyzed in turn. Section 3 of the Deed of Trust pertains to escrow funds and states, in pertinent part, the following: Funds for Escrow Items. Borrower shall pay to Lender on the day Periodic Payments are due under the Note, until the Note is paid in full, a sum (the “Funds”) to provide for payment of amounts due for: (a) taxes and assessments and other items which can attain priority over this Security Instrument as a lien or encumbrance on the Property; (b) leasehold payments or ground 12 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 13 of 24 rents on the Property, if any; (c) premiums for any and all insurance required by Lender under Section 5; and (d) Mortgage Insurance Premiums, if any, or any sums payable by Borrower to Lender in lieu of the payment of the Mortgage Insurance premiums in accordance with the provisions of Section 10. These items are called “Escrow Items.” . . . If there is a surplus of Funds held in escrow, as defined under [the Real Estate Settlement Procedures Act (“RESPA”)], Lender shall account to Borrower for the excess funds in accordance with RESPA. If there is shortage of funds held in escrow, as defined under RESPA, Lender shall notify Borrower as requested by RESPA, and Borrower shall pay to Lender the amount necessary to make up the shortage in accordance with RESPA, but in no more than 12 monthly payments. Deed of Trust § 3, J.A. 621-22. Section 5 of the Deed of Trust addresses the topic property insurance, and provides as follows: Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “Extended coverage,” and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance . . . . If Borrower fails to maintain any of the coverage described above, Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower’s equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. . . . . Borrower hereby assigns to Lender (a) Borrower’s rights to any insurance proceeds in an amount not to 13 of Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 14 of 24 exceed the amounts unpaid under the Note or this Security Instrument, and (b) any other of Borrower’s rights (other than the right to any refund of unearned premiums paid by Borrower) under all insurance policies covering the Property, insofar as such rights are applicable to the coverage of the Property. Lender may use the insurance proceeds either to repair or restore the Property or to pay amounts unpaid under the Note or this Security Instrument, whether or not then due. Deed of Trust § 5, J.A. 623-24. Lastly, Section 11 of the Deed of Trust discusses miscellaneous proceeds and contains the following language: Assignment of Miscellaneous Proceeds; Forfeiture. Miscellaneous Proceeds are hereby assigned to shall be paid to Lender. All and . . . . In the event of a partial taking, destruction, or loss in value of the Property in which the fair market value of the Property immediately before the partial taking, destruction, or loss in value is less than the amount of the sums secured immediately before the partial taking, destruction, or loss in value, unless the Borrower and Lender otherwise agree in writing, the Miscellaneous Proceeds shall be applied to the sums secured by this Securing Instrument whether or not the sums are then due. Deed of Trust § 11, J.A. 626. Miscellaneous Proceeds include: [A]ny compensation, settlement, award of damages, or proceeds paid by any third party (other than insurance proceeds paid under the coverages described in Section 5) for: (i) damage to, or destruction of, the Property; (ii) condemnation or other taking of all or any part of the Property; (iii) conveyance in lieu of condemnation; or (iv) misrepresentations of, or omission as to, the value and/or condition of the Property. 14 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 15 of 24 Deed of Trust ¶ M. The issue presented is whether these provisions of the Deed of Trust constitute sufficient collateral so that PNC’s interest is secured by more than Birmingham’s principal residence. hold that the aforementioned provisions do not We entitle Birmingham to the bifurcation sought. B. Birmingham argues that Sections 3, 5, and 11 of the Deed of Trust provide additional security for PNC’s interest such that it is no longer secured solely by an interest in real property. Appellant Br. at 19-25. These items, however, are incidental property frequently conveyed in a deed of trust and defined in 11 U.S.C. §§ 101(27B) and 101(13A)(A) as part of a debtor’s principal residence. The case Allied Credit Corp. v. Davis (In re Davis), 989 F.2d 208 (6th Cir. 1993) is illustrative. There, the Sixth Circuit found that “[i]tems which are inextricably bound to the real property itself as part of the possessory bundle of rights” do not extend a lender’s security beyond the real property. at 213; see also Akwa, 530 B.R. at 313 (D. Md. 2015). topic of insurance, the Davis court explained that Id. On the “hazard insurance is merely a contingent interest — an interest that is irrelevant until the occurrence of some triggering event and not an additional security interest 15 for the purposes of § Appeal: 15-1800 Doc: 81 1322(b)(2).” (emphasis Filed: 01/20/2017 Pg: 16 of 24 In re Davis, 989 F.2d at 211 (citation omitted) added). This reasoning similarly applies to miscellaneous proceeds and escrow funds that are tied to the real property at issue. See In re Ferandos, 402 F.3d 147, 156 (3d Cir. 2005) (“[F]unds for taxes and insurance, paid over and placed in escrow, exist precisely for the purpose of paying said taxes and connection insurance with the — a cost ownership incurred of real by the property.”); debtor see in also Kreitzer v. Household Realty Corp. (In re Kreitzer), 489 B.R. 698, 703-06 (Bankr. S.D. Ohio 2013) (holding that a security interest which residential mortgage lender took in miscellaneous proceeds was not an additional security interest that the lender possessed other than in the residential mortgage property itself). The district court in Akwa, which involved the same standard Fannie Mae/Freddie Mac deed of trust that is at issue in this appeal, correctly noted: [T]he lender may collect funds for escrow to ensure that all property-related payments, like taxes and ground rents, are paid. Likewise, the Deed of Trust also permits the lender to hold insurance proceeds if an insurer pays for repairs to the house to ensure that the lender’s investment — the real property — is repaired to lender’s satisfaction. The same is true for miscellaneous proceeds paid by a third party, which the lender can use for repairs or restoration. Akwa, 530 B.R. at 313-14. 16 Appeal: 15-1800 Doc: 81 PNC Filed: 01/20/2017 accurately states Pg: 17 of 24 that this perspective has been recognized by a number of courts in analogous circumstances. See Abdosh v. Ocwen Loan Servicing (In re Abdosh), 513 B.R. 882, 886 (Bankr. D. Md. 2014), aff’d sub nom. Abdosh v. Ocwen Loan Servicing, LLC, No. CIV. PJM 14-2916, 2015 WL 4635103 (D. Md. July 30, 2015) (noting that “[t]here is no need to re-visit in detail this clear legal issue”); In re Kreitzer, 489 B.R. at 703-06 (discussing miscellaneous proceeds); In re Mullins, No. 11-11176C-13G, 2012 WL 2576625, at *2 (Bankr. M.D.N.C. July 3, 2012) (discussing escrow funds); In re Inglis, 481 B.R. 480, 482-83 (Bankr. S.D. Ind. 2012) (“[U]nder the express terms of these provisions . . . a lender does not lose its § 1322(b)(2) protection ‘escrow by taking funds’ a security are part of interest the in ‘incidental escrow funds property’ as which comprise ‘the debtor’s principal residence.’”); In re Leiferman, No. BR 10-40718, 2011 WL 166170, at *2 (Bankr. D.S.D. Jan 19, 2011) (analyzing miscellaneous proceeds). In his opposition, Birmingham cites a series of cases where courts have held that beyond real property. certain additional collateral existed For instance, Birmingham cites the Third Circuit’s decision Hammond v. Commonwealth Mortg. Corp. of Am., 27 F.3d 52 (3d Cir. 1994) for the proposition that “supplemental collateral in a deed of trust will cause a waiver of the antimodification rights of 11 U.S.C. § 1322(b).” 17 Appellant Br. at Appeal: 15-1800 Doc: 81 43-44. Filed: 01/20/2017 Pg: 18 of 24 However, the lien in Hammond explicitly “covered more than the real property.” See Abdosh, 513 B.R. at 886. The security contrivance in Hammond created “an additional security interest in: any and all appliances, machinery, furniture and equipment (whether fixtures or not) of any nature whatsoever.” Hammond, marks omitted). 27 F.3d at 53-54 (internal quotation Here, the Deed of Trust does not expressly attempt to take a security interest in additional collateral. As the Akwa provisions court concluded, “explicitly ties the the language funds to found in ensuring that lender’s collateral — the real property — is preserved.” 530 B.R. at 313. these the Akwa, Accordingly, Birmingham’s reliance on Hammond is misplaced. Relatedly, Birmingham’s arguments premised on the holdings of other cases cited in his brief are inapposite for the same reason: the security instruments at issue explicitly granted the debtee an interest secured by more than just real property. For example, In re Ennis – in which we found the anti-modification clause of § 1322(b)(2) inapplicable to a security agreement for personal property, provides no i.e. guidance for a mobile a home home on mortgage leased that property includes – the typical incidental benefits intended to protect the interest in real property. See Ennis v. Green Tree Servicing, LLC (In re Ennis), 558 F.3d 343, 347 (4th Cir. 2009); see also Scarborough 18 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 19 of 24 v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 406, 412 (3d Cir. 2006) (holding that when a mortgage lender takes an interest in real property that includes income producing property, the lender’s interest is also secured by property that is not the debtor’s principal residence, and its claim may be modified); Lomas Mortg., Inc. v. Louis, 82 F.3d 1, 7 (1st Cir. modification 1996) of a (finding secured that claim § on 1322(b)(2) a does multi-unit not property bar in which one unit is debtor’s principal residence and the security interest extends to other income-producing units); Sapos v. Provident Inst. of Sav. in Town of Boston, 967 F.2d 918, 921 (3d Cir. 1992) (holding that the anti-modification provision is inapplicable where the note was also secured by wall-to-wall carpeting, rents, and profits), overruled on other grounds by Nobelman v. Commonwealth Am. Sav. Mortg. Bank, Corp., 508 895 U.S. F.2d 324 123, (1993); 128 (3d Wilson Cir. v. 1990) (finding § 1322(b)(2) not applicable where a mortgage agreement stated that the lender had “a security interest in appliances, machinery, furniture, and equipment”), abrogated on other grounds by Nobelman, 508 U.S. 324. Sections 3, 5, and 11 of the Deed of Trust do not create ‘‘separate or additional security interest[s], but [are] merely [] provision[s] to protect the lender’s security interest in the real property.’’ Akwa, 530 B.R. at 314 (quoting In re Kreitzer, 19 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 489 B.R. 698, 705-06). found, as proceeds, a matter and Pg: 20 of 24 Accordingly, the district court properly of law, miscellaneous that escrow proceeds are funds, insurance incidental property that do not constitute separate security interests. C. Birmingham additionally relies on a line of cases from North Carolina bankruptcy courts that ostensibly found “where an assignment of alternative collateral exists in a deed of trust other than real property, the lender modification of its secured debt.” will be subject to Appellant Br. at 26 (citing In re Bradsher, 427 B.R. 386 (Bankr. M.D.N.C. 2010); Bradshaw v. Asset Ventures, LLC (In re Bradshaw), Nos. 13-06176-8-RDD, 1400023-8-RDD, 2014 WL 2532227 (Bankr. E.D.N.C. June 4, 2014); In re Murray, No. 10-10125-8-JRL, 2011 WL 5909638 (Bankr. E.D.N.C. May 31, 2011); In re Martin, 444 B.R. 538 (Bankr. M.D.N.C. 2011); In re Hughes, 333 B.R. 360 (Bankr. M.D.N.C. 2005)). As the district court in this case correctly stated, however, the loan documents in both Bradsher and Hughes “expressly provided that escrow loan.” payments constituted additional security for the J.A. 680 (citing Bradsher, 427 B.R. at 388-89 (“[T]he loan documents purport to provide a security interest for the indebtedness secured by the deed of trust in escrow funds in addition to a security interest in the residential land and housing structure.”); Hughes, 333 B.R. at 363 (noting that the 20 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 21 of 24 loan documents “require the borrower to pledge the escrow funds as ‘additional security’”)). Hence, the language of the loan documents in both Bradsher and Hughes is unequivocally distinguishable from the language present in the Birmingham Deed of Trust. The holdings of Bradsher and Hughes therefore do not apply to this case. Moreover, in Mullins, the same judge who presided over Bradsher held that nothing in the deed of trust “suggests that a security interest is also being granted in escrow funds. Nor is there any language in the escrow provisions [] purporting to create a security interest in escrow funds to be paid by the [debtors].” In re Mullins, 2012 WL 2576625 at *2. Further, in Bynum v. CitiMortgage, Inc. (In re Bynum), Nos. 12-10660, 122031, 2012 WL 2974694 (Bankr. M.D.N.C. July 19, 2012), the bankruptcy judge found that a standard Fannie Mae/Freddie Mac deed of trust “do[es] not contain elements required to create a security interest in Escrow Funds.” To the extent that Id. at *3. Birmingham also relies upon In re Daniels, No. 15-666-5-SWH, 2015 WL 9283153 (Bankr. E.D.N.C. Dec. 18, 2015), a case that addresses the district court decision that is currently before us, the Court in Daniels stated that “Birmingham involved a deed of trust that did not contain explicit language creating a security interest in escrow funds.” Id. at *3 (citation omitted). Highlighting this difference, the 21 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 22 of 24 Court in Daniels found that “Birmingham’s rejection of Bradsher and Murray is not instructive.” Id. In short, the North Carolina bankruptcy courts agree that the anti-modification clause applies to the Fannie Mae/Freddie Mac Deed of Trust before us in this case. We thus have no occasion to consider – language in a deed the effect purporting to – if any create a of additional separate security interest in escrow funds, insurance proceeds, or miscellaneous proceeds, in light of our interpretation of § 1322(b)(2). D. Birmingham also argues that both the bankruptcy court and the district court should have looked to Maryland law to determine whether the Deed of Trust created additional security interests in escrow funds, insurance proceeds, and miscellaneous proceeds as Bankruptcy “real Code, property.” however, Appellant explicitly Br. at defines 21-24. The “incidental property” to a debtor’s principal residence, which includes both escrow funds and insurance proceeds. 11 U.S.C. § 101(27B). State laws are suspended if they conflict with the Bankruptcy laws. Butner v. U.S., 440 U.S. 48, 54 n.9 (1979). Thus, it is not necessary for us to examine Maryland law on this issue. Even if Maryland law were to apply, it is far from clear that the resulting holding would be favorable for Birmingham. A security interest is created, under Maryland law, when there is 22 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 23 of 24 language present in the security instrument that leads to the logical conclusion that it was the intention of the parties to create Inc. v. Larrimore, 628 A.2d 215, 220 (Md. 1993) (citation omitted). We have a security already found language wherein funds, a interest. that insurance Tilghman the Deed security of interest proceeds, or Hardware, Trust was did not granted contain in miscellaneous escrow proceeds. Therefore, Birmingham’s argument with respect to the application of Maryland law is unavailing. Finally, the policy arguments that Birmingham puts forth are similarly ineffective. Birmingham asks this circuit to ignore various cases that characterize escrow funds, insurance proceeds, and miscellaneous proceeds as “part and parcel” of real property. Appellant Br. at 44 (citing In re Kreitzer, 489 B.R. at 704; In re Ferandos, 402 F.3d at 151; Davis, 989 F.2d at 211; In re Rosen, 208 B.R. 345, 354 (D.N.J. 1997)). Additionally, Birmingham relies on In re Escue, 184 B.R. 287 (Bankr. M.D. Tenn. 1995) to contend that the bankruptcy court erred by not finding issue constitute that the supplemental pertinent incidental collateral, legislative history of the Bankruptcy Code. 48-49. in light items at of the Appellant Br. at The Escue decision came before §§ 101(13A)(A) and (27B) were enacted, however. Furthermore, as with many of the other cases that Birmingham has cited, the deed of trust at issue in 23 Appeal: 15-1800 Doc: 81 Filed: 01/20/2017 Pg: 24 of 24 Escue expressly created a security interest in certain fixtures with granting language that is wholly absent from the Birmingham Deed of Trust. Consequently, Birmingham’s reliance on Escue is misplaced. Characterizing escrow funds, insurance proceeds, and miscellaneous proceeds as additional security for § 1322(b)(2) “would completely eviscerate the anti-modification exception of § 1322(b)(2) because many deeds of trust which encumber improved real property contain these provisions to protect the lender’s investment in the real property.” (internal quotation marks omitted). Akwa, 530 B.R. at 313 Moreover, as the district court noted, Congress did not intend for Birmingham’s position and “this principle cannot be squared with an interpretation that would render the anti-modification provision inapplicable to virtually all residential mortgages.” J.A. 682. IV. The Deed of Trust on Birmingham’s residence is secured only by real property that is also Birmingham’s principal residence. Escrow funds, insurance proceeds, and miscellaneous proceeds do not constitute additional collateral. Accordingly, Birmingham’s complaint fails to state a claim for relief that is plausible. For the foregoing reasons, the district court’s judgment is affirmed. AFFIRMED 24

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